* KOSPI index drops 1.8%, foreigners net sellers
* Korean won strengthens versus U.S. dollar
* South Korea benchmark bond yields down
* For the midday report, please click
By Hayoung Choi
SEOUL, July 29 (Reuters) - South Korean shares shed nearly 2% on Monday, as tensions with Japan added more pressure on the export-dependent economy already reeling from weak global demand and the U.S.-China tariff war.
The Seoul stock market’s main KOSPI index stumbled 1.78% to 2,029.40 points, closing at its lowest since late May. The junior KOSDAQ index closed down 4%.
“Downside risks on the South Korean economy have grown due to Japanese export restrictions, while a big deal between the United States and China seems unlikely,” said Kim Ji-hyung, an analyst at Hanyang Securities.
“Weak corporate earnings also weighed on the markets,” he added.
Chipmakers Samsung Electronics fell 2.2%, while SK Hynix slumped 3.5%.
Japan said earlier this month it would tighten restrictions on exports of high-tech materials used for making memory chips and display panels to South Korea.
South Korea’s exports are expected to contract for the eighth straight month as a trade rift with Japan drags on the economy, according to analysts polled by Reuters.
U.S. and Chinese trade negotiators will meet in Shanghai this week for their first in-person talks since a G20 truce last month. However, expectations were low for a breakthrough with U.S. President Donald Trump offering a pessimistic view on reaching a trade deal with China.
Shares of Ssangyong Motor and furniture maker Hanssem plunged after the firms posted weak second-quarter results. Ssangyong, owned by India’s Mahindra and Mahindra, closed down 8%, while Hanssem shares shrank 16%.
South Korea’s central bank delivered a surprise interest rate cut in July to counter deteriorating economic conditions and the U.S. Federal Reserves is broadly expected to cut its benchmark rate by a quarter point at its July 30-31 meeting.
“Despite the rate cut by the Bank of Korea, the parliament’s approval of the extra budget bill has been delayed, providing no fresh momentum to financial markets,” Kim noted.
Foreigners were net sellers of 62.5 billion won ($52.82 million) worth of shares on the main board, marking their first net selling in 11 consecutive sessions. Foreigners’ buying of chip giants including SK Hynix had supported the broader market this month, but they locked in profits on Monday, analysts said.
The trading volume during the session on the KOSPI index was 596.17 million shares and, of the total traded issues of 892, the number of advancing shares was 74.
The Korean won strengthened versus the dollar. The won was quoted at 1,183.5 per dollar on the onshore settlement platform , 0.11% higher than its previous close at 1,184.8.
The currency has lost 5.7% against the U.S dollar so far this year.
In money and debt markets, September futures on three-year treasury bonds rose 0.01 points to 110.84, while the 3-month Certificate of Deposit rate was quoted at 1.53%.
The most liquid 3-year Korean treasury bond yield fell by 0.1 basis points to 1.307%, while the benchmark 10-year yield fell by 1.1 basis points to 1.413%.
$1 = 1,183.3100 won Editing by Jacqueline Wong